State payroll overhaul late, over budget

New analysis questions whether the $373 million project is even feasible

Sacramento  The nonpartisan analyst to the legislature has issued a report questioning the feasibility of the state’s planned $373-million overhaul of its payroll system.

The Legislative Analyst’s Office report also casts doubt on whether the state’s technology agency has the authority, budget and expertise to oversee such an undertaking in a cost-effective manner.

Controller John Chiang last month fired the latest private company charged with upgrading the payroll system — a complicated task that was supposed to cost about a third of the current estimate and be completed five years ago. Senate President Pro Tempore Darrell Steinberg, D-Sacramento, has called for a hearing to examine what has gone wrong with the project.

SAP, which replaced the previous contractor BearingPoint, spent three years working on the system that endeavors to issue paychecks and process medical benefits for more than 240,000 state employees in 160 departments. A test run found nearly one out of three tasks carried out incorrectly, officials said.

The Legislative Analyst’s Office said the payroll system upgrade — dubbed the 21st Century Project — has cost the state about $260 million so far “with few tangible deliverables.”

“Due to recent events, it is unclear to our office that integrating the state’s payroll systems, in their current structure, is feasible,” the report states.

The Legislature may determine that continuing the project risks “throwing good money after bad” and wastes state resources that could be used for other purposes, the report states. On the other hand, legislators must weigh that concern against the importance of updating the state’s aged payroll systems, “a critical component of the state’s personnel and financial management.”

The analyst’s office said state technology officials may approve, suspend, terminate and reinstate projects. But they lack the authority “to make enforceable recommendations as project issues arise on a day-to-day basis.” What’s more, state officials appear to be over-concentrated on projects during planning phases but then have relatively few opportunities to exercise their authority over the contractor.

The analyst recommended lawmakers require state technology officials to contract with an independent firm to review the completed work and look at simplifying state payroll practices.

That could reduce needed software customizations, enhancing the prospects of successfully implementing a statewide payroll system, the report said.

Chiang’s spokesman said further work on the project has been suspended until the controller and state technology officials conduct an independent assessment of the system to determine whether any of the work by prior contractors could be salvaged. That process could add another year to the timeline.

The controller’s spokesman added that a task force formed by Chiang and Gov. Jerry Brown is already at work on changes to the state’s procurement process.

California has had a long and troubled history with its computer systems.

Amid the uncertainty over the 21st Century Project, the analyst’s office further suggested lawmakers require state officials to do an analysis that compares the costs and feasibility of several alternatives, including maintaining the state’s outmoded system. The analysis should also document lessons learned and strategies to prevent a repeat of previous problems, the report states.